A change in the cost base may also constitute an adjustment to transfer prices.

The Supreme Administrative Court, in its judgment of 26 May 2026, file reference II FSK 971/23, referred to the qualification of remuneration adjustments between related entities as transfer pricing adjustments.

What was the case about?

The case concerned a company operating in the media industry that purchased substantive and administrative support services from a related entity.

The fee for these services was determined using the cost-plus-5% method, with the company paying a lump sum throughout the year based on planned costs. After the end of the accounting period, the fee was adjusted upwards or downwards, depending on the actual costs incurred.

In the individual tax ruling, the company argued that such adjustments did not constitute transfer pricing adjustments because they did not serve to “marketize” the markup (referred to as a margin in the rulings and judgments). This markup remained unchanged, and the adjustment merely resulted in a more realistic cost base.

The authority deemed the company’s position incorrect, indicating that these adjustments constituted transfer pricing adjustments. The Provincial Administrative Court shared the company’s position. However, the Supreme Administrative Court did not confirm the company’s and the Provincial Administrative Court’s approach.

What did the Provincial Administrative Court agree with?

The Regional Administrative Court found that the adjustments made by the company did not constitute transfer pricing adjustments. According to the First Instance Court, their purpose was not to bring the transaction price between related entities to market level, but solely to realign the cost base used for calculating remuneration.

The Regional Administrative Court noted that the parties had agreed on a fixed markup of 5%. Since the markup remained unchanged, the Court found that there was no change in the company’s profitability. Consequently, the Regional Administrative Court held that corrections should be settled under general principles, i.e., on an ongoing basis during the settlement period in which corrective invoices are issued.

What did the NSA indicate?

The court noted that in the analyzed model, the service provider’s remuneration consisted of two elements: a cost base and a fixed mark-up charged on that base.

According to the Court, it is not possible to artificially separate one of these elements and assume that the mere immutability of the mark-up guarantees the market nature of the entire remuneration.

The market value of the transfer price is influenced by both the markup amount and the actual cost base from which it is calculated. Both of these elements shape the final remuneration for the service, and thus the financial result of the terms agreed upon between related entities.

Why were planned costs important?

In the case at hand, it was particularly significant that the fee was determined based on planned costs throughout the year. Only after the end of the billing period was it recalculated based on the costs actually incurred by the service provider, while maintaining a fixed 5% markup.

The Supreme Administrative Court found that such a mechanism falls within Article 11e, point 2 of the Corporate Income Tax Act. This provision covers, among other things, situations in which, after the end of the period, the taxpayer obtains knowledge of the actual costs incurred or revenues earned that are the basis for calculating the transfer price.

This means that in cost-plus models, the reason and nature of the adjustment must be determined on a case-by-case basis. If the adjustment is not due to an obvious error, complaint, rebate, discount, or change in the scope of services, but rather constitutes an adjustment of the remuneration in a transaction between related entities to the actual costs or revenues that are the basis for calculating the transfer price, it may be subject to the regime of Article 11e of the CIT Act, i.e., be considered a transfer pricing adjustment.

What does this mean in practice?

The judgment is important primarily for entities that use budgets, cost plans or cost estimates in intra-group settlements and then settle at actual values ​​after the end of the period.

The mere fact that the markup remains constant does not mean that the adjustment is purely technical or “ordinary”.

At the same time, this does not mean that every adjustment to settlements between related entities will constitute a transfer pricing adjustment. Each factual situation requires a separate analysis, particularly in terms of the reasons for the adjustment and the method of calculating the fee.